Has market found a bottom?
NEW YORK (Reuters) - Investors are dubious that Wall Street's best week since November means the stock market has found a bottom.
Even though the Dow industrials advanced nine percent for the week and the S&P 500 shot up over 10 percent from the close on March 6, investors still fear the same problems.
After the credit crisis shredded the financial system and markets worldwide, many still question the health of banks and believe the economy will stay weak through 2009.
"Obviously, for a massive widespread rally, you are going to need more people comfortable and I don't think that happens until a plan is produced to address the banking issues," said Peter Jankovskis, director of research at OakBrook Investments LLC in Lisle, Illinois.
"I really don't think you're going to see a true floor in this market until we get a comprehensive plan on the finance sector."
Since January, it has largely been a case of one step forward, two steps back for markets, with rallies promptly being reversed as markets push lower. Stocks racked up their best week since November on Friday with a four-day winning streak, and while investors note that this is a positive sign, it does not necessarily mean the worst is over.
Banks led the advances as executives from Citigroup, Bank of America and JPMorgan Chase said that their banks had been profitable for the first two months of the year and attempted to soothe worries about the possibility of government nationalization of the sector.
Financials will continue to set the market's direction as investors await the results of government "stress tests" to determine banks' health, as well as additional details on the Treasury Department's plan to shore up the sector.
"I find it encouraging that people were willing to step into the market on the fundamental news that came out from Citigroup and Bank of America. It's a sign that at least a few people out there are comfortable enough that the problems will be resolved," Jankovskis said.
In the week ahead, investors will watch for any new methods the Federal Open Market Committee may use to bolster the weak economy. With the fed funds rate target already near zero, analysts are expecting the Fed will hold rates steady at the end of the two-day meeting on Wednesday. Both analysts and investors will be looking for signs of any other measures the Fed might take to loosen credit markets, such as buying up long-term US Treasuries.
A fresh round of data on inflation, manufacturing, housing and the labour market is expected to show a gloomy picture of the economy. Today, the Federal Reserve will release February readings on industrial output and capacity utilisation. Tomorrow the US Producer Price Index and housing starts, both for February, are due.
On Wednesday, the US Consumer Price Index for February will be released. Economists polled by Reuters expect that overall CPI rose 0.3 percent in February, matching January's gain. Core CPI, excluding volatile food and energy prices, is forecast to have edged up only 0.1 percent in February, compared with a 0.2 percent gain in January.
For the week, the benchmark S&P 500 shot up 10.7 percent, making it the index's third best week since World War II. The Dow jumped 9.01 percent, and the Nasdaq added 10.6 percent.
Market watchers worry that the ramp-up could turn out to be too much, too fast as stocks' ability to accumulate gains over time to build a solid base is considered a key characteristic of a meaningful rally.
Even with the week's substantial gains, the Dow Jones industrial average is down about 18 percent for the year so far. The Nasdaq composite index is down about nine percent for 2009, while the Standard & Poor's 500 is off about 16 percent.
From its all-time high hit in October 2007, the S&P 500 has lost about 52 percent.
"A lot of investors understand that if they catch the bottom, the upside can be enormous. Rallies at this point may start to be really, really sharp. But people are nervous, so there is ample opportunity for sellers," said Charles Lieberman, chief investment officer of Advisors Capital Management LLC, in Paramus, New Jersey.
Pundits are also wary of calling a low for the bear market in the midst of a situation that remains overwhelmingly negative: dismal economic data, accelerating job losses, tight credit markets and uncertainty over what steps US officials can take to rescue the economy.